Airbus - Competitive Advantage Case 3 Airbus vs Boeing: A...

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1 Competitive Advantage Case 3 Airbus vs Boeing: A Strategic Battle for Market Share “I'm happy to put Boeing and Airbus into a box and let them thrash it out,” – Peter Gardner, vice-president, Cathay Pacific Airways Ltd. . Beaming proudly, Airbus Industrie sales chief John J. Leahy strolls through a life-size mock-up of the A380 superjumbo jet at company headquarters in Toulouse, France. He lingers in the luxurious first-class cabin with its wood-paneled library and wine bar and lets his voice echo through the cavernous economy cabin, big enough for more than 550 passengers on two decks. Then he fixes his visitor with an intense gaze. “Isn't this the way you want to fly?” he asks. It's an impressive pitch--and it's working. Since July, Leahy has logged 66 orders for the A380, which even can be configured to hold up to 800 passengers. It will be the biggest commercial aircraft ever made. Leahy has made arch-rival Boeing Co. look like an also-ran as he has signed up industry pacesetters such as Singapore Airlines and Federal Express and lured away Boeing stalwarts such as Qantas Airways. Indeed, Boeing hasn't won a single order for a stretch version of the venerable 747 that it's offering as an alternative to the A380. The Airbus Strategy A dazzling start, no doubt. But is it a good deal for Airbus? The company is giving extraordinarily generous terms to early buyers. It's selling the cargo model of the A380 for as low as $133 million and the passenger model for just over $140 rnillion-about 40% off list prices and less than the going rate of $140 million to $150 million for Boeing's 747. Airbus is accepting down payments as low as $500,000 per plane while giving customers the option of canceling orders 12 months before delivery without customary penalties. Airbus has offered lenient terms to buyers of established models before. But experts say that it is unusual to offer them on a new plane. 'I'rue, manufacturers always sweeten the pot for first-time buyers of new aircraft, discounting them and throwing in everything from free pilot training to spare parts. And Leahy, a New Yorker who joined Airbus in 1985, is renowned for luring customers. His dealmaking skills helped the European company break into the U.S. market in the 1980s and boost its global market share from 21 % to nearly 50 % in the past five years. But, says an airline executive who has seen the terms Leahy is offering on the A380, “I don't know of a deal that has ever been quite this generous.” These concessions only steepen the already difficult path to profitability for the A380. To meet its break-even targets, Airbus says it expects to deliver 250 superjumbos by 2011. But to offset the deep discounts and raise needed working capital, it will have to demand bigger up-front payments from future customers and charge them close to list prices—$218 million to $235 million, says aerospace analyst Paul H. Nisbet of Newport (R. 1.)-based JSA Research. Cost-
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This note was uploaded on 07/23/2010 for the course BUSINESS 106 taught by Professor Prahladkasturi during the Spring '10 term at Radford.

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Airbus - Competitive Advantage Case 3 Airbus vs Boeing: A...

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